2016 (9) TMI 881 - HC - Customs

Interest on refund under the provisions of Section 27A of the Customs Act, 1962 - import of spares and consumables for carrying out drilling operations - Notification No.21/2002-Cus dated 1st March, 2002 - exemption of goods required in connection with petroleum operations undertaken under petroleum exploration licenses - sub-contractor - Essentiality Certificate - import without claiming benefit and on payment of duty - claim for refund - is applicant entitled to get interest on delayed refund? - Held that - once an application for refund has been made and the same is granted within a period of three months from the date of receipt of the application, then there would be no liability to pay interest to the applicant. However, if the refund is granted beyond the period of three months from the date of receipt of the application, then, on the amount of refund granted, interest would also be payable from the date immediately after expiry of three months from the date of receipt of such application, till the date of refund. the decision in the case Ranbaxy Laboratories Ltd Vs. Union of India 2011 (10) TMI 16 - Supreme Court of India would apply. The Petitioner had not complied with the conditions of the Essentiality Certificate. It therefore held that the Essentiality Certificate could not be taken to be the basis of the refund and accordingly rejected the refund application of the Petitioner. This order dated 13th December, 2011 was thereafter subjected to an appeal and as well as further proceedings , which finally culminated in a refund being granted to the Petitioner on 23rd June, 2014 in the sum of ₹ 1,89,15,549/-. As no interest was granted on this refund, the Petitioner challenged the said order - Held that - the statutory provisions are clear that where there is a delay in the grant of refund, then interest must follow. It is only the calculation thereof which would be determined by the Authority - applicant entitled to interest. Necessary action to be taken against the Secretary, Ministry of Finance (Department of Revenue), Government of India and the Chairman, Central Board of Excise and Customs, New Delhi. It is only they who would possibly realise that the object and purpose is to take expeditious action on refund applications so that revenue loss is avoided in payment of statutory interest. The intent is to discourage the tendency of not taking prompt action on these applications, thereby defeating all policies aimed at creating a business friendly atmosphere. They must also realise that litigation in Court on this score results in precious time and money being wasted. Applicant entitled to interest on delayed refund - matter on remand to Refunding Authority for the limited purpose of calculating and paying interest - petition disposed off - decided in favor of petitioner.

Summary

Issues Involved:
1. Validity of the impugned order rejecting interest on the refund.
2. Compliance with the Essentiality Certificate conditions.
3. Entitlement to interest under Section 27A of the Customs Act, 1962.
4. Timeliness and completeness of the refund application.

Detailed Analysis:

1. Validity of the Impugned Order Rejecting Interest on the Refund:
The Petitioner challenged the impugned order dated 29th April 2016, which denied interest on the refund granted under Section 27A of the Customs Act, 1962. The Petitioner argued that the order was contrary to the provisions of Section 27A and previous orders, including the one from the Commissioner of Customs (Appeals) and the High Court, which indicated entitlement to interest on delayed refunds.

2. Compliance with the Essentiality Certificate Conditions:
The Petitioner had imported spares and consumables for drilling operations and claimed exemption under Notification No. 21/2002-Cus, subject to obtaining an Essentiality Certificate from the Directorate of Hydrocarbons (DGH). Initially, the Petitioner could not avail of the exemption due to the lack of a recommendation letter from ONGC. The Essentiality Certificate was eventually issued on 13th March 2003, but the refund application filed on 4th April 2003 was returned as premature. The refund was finally sanctioned on 23rd June 2014, but without interest, leading to the current dispute.

3. Entitlement to Interest Under Section 27A of the Customs Act, 1962:
Section 27A stipulates that interest is payable if a refund is not processed within three months from the date of receipt of the refund application. The Petitioner argued that the refund application was complete on 4th April 2003 and again on 20th June 2011 when all required documents were resubmitted. The Petitioner sought interest from three months after 20th June 2011 until the refund payment date of 11th July 2014. The Court referenced the Supreme Court's interpretation in Ranbaxy Laboratories Ltd. v. Union of India, which confirmed that interest is payable from the expiry of three months from the refund application date until the refund is granted.

4. Timeliness and Completeness of the Refund Application:
The Court examined whether the refund application was complete and timely. The Refunding Authority initially rejected the refund on the merits, not on the grounds of incompleteness. The Court found that the Petitioner had fulfilled the conditions of the Essentiality Certificate and that the refund application was complete as of 20th June 2011. The Court disagreed with the Refunding Authority's assertion that the refund claim was complete only after the personal hearing on 12th May 2014.

Conclusion:
The Court set aside the impugned order dated 29th April 2016, holding that the Petitioner was entitled to interest on the refund amount from three months after 20th June 2011 until 11th July 2014. The matter was remanded to the Refunding Authority for the limited purpose of calculating and paying the interest. The Court emphasized the importance of expeditious action on refund applications to avoid revenue loss and unnecessary litigation. The judgment was directed to be forwarded to the Secretary, Ministry of Finance, and the Chairman, Central Board of Excise and Customs for necessary action.